Blog: When Paying Tax Could Save You Money

30th October 2024

Shelagh Young reflects on today’s budget announcements in the context of our recent Great Risk Transfer research on the changed relationship between employees and employers in the context of financial wellbeing.

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Has the Government broken its promise not to increase taxes on working people by increasing employer’s payroll costs?

No one can pretend that the 1.2% increase in employer’s National Insurance Contributions (NICS) and reduction in the threshold at which this tax kicks in announced in Rachel Reeves’s budget statement won’t increase costs to business.

But, is arguing, as many critics have, that this amounts to a tax on workers backed by evidence?

The immediate budget post-mortem, driven partly by the opposition’s outraged response, delved into questions of whether voters were betrayed. But while the trustworthiness of Governments obviously matters, these are surely not the most important questions to be focused on in the aftermath of what is generally agreed to have been a very significant budget indeed.

Trotting out common sense assumptions that a tax on employers is a tax on the workers simply isn’t good enough.

Superficially it seems obvious that many employers will pass on this cost - for example in higher prices to consumers, lower wage rises, redundancies or reductions in growth through recruitment meaning a contraction of the jobs market. 

Indeed the same was said when the National Minimum Wage (NMW) was first introduced and will no doubt be said about other measures in this budget which will increase the NMW significantly in 2025.

Unfortunately for the critics there is very little evidence that such measures do have the dire negative impact on “working people” so often predicted by the business sector and its representatives.

For one thing this budget, like others before it, maintained and, in some cases increased the corporate welfare measures that will reduce the impact on some employers.

In the case of NICS, the Employment Allowance was increased significantly meaning that the smallest employers with four or fewer employees on the NMW will pay no employer NICS at all. But, over time, there will be other ways in which many employers can compensate for higher taxes.

Paying more to spend less

For example, if this budget really does lead to greater investment in the NHS and other important public services, might employers need to spend less on mitigating the impact of poor public services by providing ever more costly employee benefits?

Earlier this year we explored how employers were addressing diminishing employee wellbeing.  Measures being taken ranged from enhanced private healthcare plans including services such as “virtual” GPs to schemes offering loans for rent deposits.

The reasons for investing in employee wellbeing were clear - employers are seeking to reduce absenteeism and increase productivity by mitigating the stresses and strains affecting their employees many of which they attribute to matters such as the difficulty people have in accessing NHS care, expensive housing and childcare and even, poor public transport

So the question we would like to add into the budget debate mix is why employers and their representatives rarely mention the costs to business of what the Chancellor referred to as public services that are “on their knees”?

Whether or when this budget will achieve the Government’s stated goal of “rebuilding Britain” remains to be seen but the hope that it could help rebalance the burden of risk employers currently bear for the poor health and wellbeing of their workers should not be ignored.

Blog: If directly elected mayors are the answer, what is the question?

6th September 2024

Esther Roberton spoke recently as part of our Forgotten Wisdom? event and was asked a question about directly elected mayors. In this blog she expands on her response. Find out more about Esther at the end of this blog.

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In recent times momentum has been building behind the idea of elected mayors in Scotland. Besides the distraction about whether they would be mayors or provosts lies a bigger and more significant question: what is the problem elected mayors are expected to solve?

The common denominator behind many of the arguments in favour seems to be that Andy Burnham has done a great job in Manchester. There is certainly plenty of press coverage of his significant achievements around transport and capital projects. What we don’t see is much about how the people of the area feel or how engaged they are in the decisions being made. Nor do we hear much about other mayors in England. Turnout in mayoral elections is notoriously low and in some areas the decision to have a mayor has been reversed. Likewise, this approach does not extend to much of the country and risks a very uneven form of devolution. There are also significant risks in centralising power in the hands of one individual.

So why do some people think mayors would be a good idea in Scotland? We are certainly one of the most centralised countries in Europe and the commitment of the Constitutional Convention to devolve power out of Edinburgh has not been honoured. In fact, subsequent governments have drawn ever more powers to the centre. Trust and confidence in politicians and democracy is low and most people feel powerless and disengaged from the decisions that affect their lives.

Donald Anderson and Stephen Purcell, former leaders of Edinburgh and Glasgow City Councils, wrote recently about their effective cooperation between our two biggest cities: they worked in partnership rather than competition for the greater good of both cities and the wider country.

It seems a leap, however, to suggest that regional mayors, structures and powers are needed to continue their efforts, and that those two mayors would cover 14 local council areas. I’m not convinced the people of Fife or other areas would welcome that. The approach would also continue the focus on the central belt and leave our rural areas even more disadvantaged.

Over the years, both the Accounts Commission and the Auditor General have called for bolder leadership from council leaders. As councils are stripped of power, the role of councillor and especially council leader becomes less attractive. More local councils with more autonomy and more powers – especially to raise more of their income locally – might attract bolder leaders.

While the idea of directly elected mayors appeals as a simple solution to the continuing democratic deficit, it seems unlikely they would address the real challenges facing our democracy.

I would urge policy makers to consider the evidence and engage with the public before jumping on the mayoral bandwagon: I believe the answer is to address the unfinished business of the democratic renewal we were promised by the Convention and build truly local democratically elected councils.

About the author

Esther Roberton was Co-ordinator of the Scottish Constitutional Convention, whose 1995 publication ‘Scotland’s Parliament, Scotland’s Right’ provided the blueprint for devolution. Esther is currently a non-executive director of Scotland’s Futures Forum. She has spent a lifetime in public service, most recently as Chair of NHS Lothian and Fife Cultural Trust. Before that she was Chair of NHS24 and a Non-Executive Director of the Scottish Government. In 2017 she was asked to chair the Independent Review of Legal Services Regulation for the Scottish Government and was a Press Complaints Commissioner from 2007 to 2014.

Blog: Are we singing a new song?

29th August 2024

by David Gow, DHI Trustee

"Fings can only get worse," Sir Keir Starmer intoned in the 10 Downing Street rose garden on August 27 in a reverse reprise of Labour's 1997 campaign song . "Before they get better." He added that the UK should "accept short-term pain for long-term gain." It's a tough ask but maybe Scots at least are up for it.

Perhaps, indeed. What emerges from our latest quarterly survey of voter sentiment towards the Scottish Economy, Understanding Scotland, is that Scots are increasingly torn between feeling (a shade) more upbeat and anxious, between modest optimism and continuing pessimism.

Certainly, more than half (56%) of the 2227 respondents to the survey conducted exactly a month after the July 4 General Election still think Scotland is heading in the wrong direction but that's six points down on the record 62% in May while those believing the opposite are up four points at 23%. 

What's more, fears about the cost of living/inflation at 58% are down close to levels last seen in January 2022 (56%), probably reflecting the upturn in earnings and even (some) lower prices. (The survey pre-dates Ofgem's announcement of a 10% hike in energy guide prices). Most tellingly, those thinking that general economic conditions are worse than 12 months ago have fallen to 52% (net) or the lowest level since the survey began in October 2021. Personal negativity is down to 42% from a high of 65% in November 2022 while optimism is up to 15% (net) - hardly a dizzying decline but worth monitoring to see if it upticks

As we and our colleagues at the Diffley Partnership say in the report's intro, "a growing proportion are unsure about the country’s direction, suggesting a populace still searching for clarity in uncertain times." As we point out, there remains a significant sense of precarity, notably among families with children.

Unhealthy options among the poor

More than one in five (22%) is still cutting back on fruit and veg to cut food bills, a bad signal for a nation fighting rampant obesity, while a similar number is reducing meal/portion sizes to save money - the same goal pursued by the 14% skipping meals. It's surely bad news that more than a half (52%) admits to shopping on price rather than health, while a quarter or more is eating processed food and/or cheap food requiring little or no cooking. And we know from here and elsewhere that it's poorer parents, particularly young mothers, who skimp on meals so they can feed their kids.

Financial resilience remains worryingly high among less well-off households. A third of households with children are not confident they could raise £100 in an emergency without borrowing, a level that rises to 58% when the required loan is £500. Inequality may not be a substantial policy issue (at just 8%) but poverty remains among the biggest priorities (27%).

Tax and spend alerts

Ahead of the October 30 Budget (UK) and the Scottish Government's renewed brake on spending, concern about manging public finances is on the up - at 29% compared with 24% a year ago. And a third remains convinced spending on public services is an important issue facing the Scottish economy. Rachel Reeves' "black hole" is clearly and understandably putting the wind up a lot of folk., including actual and/or potential pensioners (a concern for 12% or up three points on May.)

Will hospital consultation/treatment waiting lists come down? Obviously, it's too soon to tell but healthcare and the NHS remain by far the biggest concern (51%) - compared with the mere 8% thinking of the constitution, an issue that does not win elections. Nor, surprisingly, do green/climate change issues (just 11%, down one point on May).

Unsurprisingly, however, immigration and crime are rising up people's political agenda, with the former at a survey peak of 13% (up three points on May) and the latter at a new high of 11% (up two points). The two are often wrongly linked, notably in tabloid media, but both may well prove growing headaches for the new UK government. We shall closely monitor trends here.

Overall, it's clear from this survey that the new UK government and whichever administration emerges from the elections to Holyrood due in May 2026 have a lot to do to convince a sceptical population that those "sunlit uphills" can be glimpsed around the corner. Again, hardly surprising after this dreich summer...

End

Press Release: Globally renowned Scottish expert to shape policy to end the housing emergency

 12th August 2024

Professor Duncan Maclennan to lead a major project for the Edinburgh based think tank, the David Hume Institute

The David Hume Institute has announced a new programme of work with Professor Duncan Maclennan to look at the actions needed to transform the housing system in Scotland.

Housing is essential infrastructure for people and the economy. Currently too many people are unable to find a home or are living in poor quality housing that is affecting their health and their ability to be productive and thrive.

The work will look at the actions needed in the whole system from homelessness, unaffordable rents and planning, to skills shortages and supply-chain issues. 

Professor Maclennan has had a long and internationally distinguished career as an applied economist specialising in housing, neighbourhoods and cities. His professional roles have spanned senior positions in both academic and government settings, in the UK, Canada and Australia. At the University of Glasgow in the 1980s he established and led the Centre for Housing and Urban Research, and in the 1990s directed the ESRC Cities and Competitiveness Program and Joseph Rowntree Foundation programs on Housing Finance, Housing and the Macro-Economy and Housing and Area Regeneration. In recent years he has advised governments in Australia and Canada on housing system shifts to improve economic and environmental outcomes.

Professor Maclennan said

“I am delighted to be working with the David Hume Institute again to help understand the housing emergency. Difficult housing outcomes - homelessness, rising rent burdens and lengthening queues for social housing, falling home-ownership rates for the under 40’s - have spread and deepened for decades. They reflect a failure both of  income growth, especially for poorer Scots, and of the functioning of the housing system that has driven the sustained rise of housing prices ahead of incomes.

The roots of the emergencies in the overall housing system need to be understood and their consequences, not least for the economy and environment, recognised. Policy solutions may involve additional rights and fiscal resources, but the scale of emerging difficulties means that we urgently need to disrupt how we govern, plan and deliver new and improved homes that work for people, places, the economy and the environment. The work will aim to deliver proposals that can act to reduce difficulties now but will also frame a transformation of Scotland’s  housing system for the decades ahead”

Ken Ross, David Hume Institute Trustee and former Chair of both the Scottish Property Federation and Scottish House-Builders Association said

“I am proud that we have initiated this ambitious project to follow-up Duncan’s previous work for the David Hume Institute, A Scotland of Better Places. Business as usual is not an option. This project will help take Scotland’s housing system from a hideous emergency to one fit for the future to ensure this vital infrastructure is there to support people and the economy.”

ENDS

Notes to Editors

• The David Hume Institute is an independent think tank based in Scotland. The charity was established in 1985 to increase diversity of thought on the economy and related public policy. Find out more on our website

• About Professor Duncan Maclennan: Duncan was a member of the Board of Scottish Homes from 1989 until 1999 and then  spent a decade working in government, as special Adviser to the First Minister of Scotland, as a Chief Economist in the Government of Victoria and as Chief Economist in Canada’s Federal Department for Infrastructure and Cities. He has acted as adviser to Ministers in the UK, Scotland, France, Poland and Norway, Canada, Australia and New Zealand.  He is a fellow of the Royal Society of Edinburgh, the Academy of Social Sciences and Honorary Member of the Royal Town Planning Institute, The Chartered Institute of Housing and the Royal Institute of Chartered Surveyors. He was awarded a CBE for services to UK housing research in 1997. He remains affiliated to the University of Glasgow as an Emeritus Professor of Urban Economics and holds Professorial appointments in Housing Economics at McMaster University (Ontario) and UNSW (Sydney).

Blog: Shaking off our misery?

Blog by David Gow, DHI Trustee

If the public mood in Scotland, as measured by the latest quarterly Understanding Scotland Economy Tracker, is pretty much as bad as it seems, we might as well call off the final five weeks of campaigning in the UK general election and put the politicians out of their misery by voting now. 

After all, there are critical and more exciting events coming up like the opener in the Euros 24: Germany v Scotland on June 14 in Edinburgh's twin city Munich.

The latest tracker certainly paints a sombre picture of how we Scots feel. Almost two in three (62% compared with 58% three months ago) believe Scotland is moving in the wrong direction - the highest level since the series began. And less than one in five (19% compared with 23% in February) think it's heading the right way. These are devastating findings for our political class as a whole (which should read the findings and wake up to reality). 

The reality is that Scots are worried above all by Healthcare/the NHS - 52% view this as the top issue - and the cost of living (40%) though this latter concern is easing though hardly to the point where "turned the corner" talk is credible. And almost one in five (18%) list trust in politics as the critical issue - a number that's rising.

This does not amount to a conducive environment for a bog-standard campaign centred around "tax and spend" policies (like the one we're having now). Scottish voters are more than disgruntled. Their mood may not (or perhaps even may) amount to despair or rage but they certainly need a dose of hope and optimism. And please don't talk about the constitution - only 7% think it the priority issue.

The overall findings gave plenty of food for thought - and lively discussion - at the latest tracker's presentation in the historic home of RBS on St Andrew Square. It was a lovely late spring morning with sun shining through the upstairs windows and birds carolling us but the discussants were reflective, pondering the state we're in - not the one the politicians are peddling elsewhere.

Introduced by Scott Edgar of the Diffley Partnership, the tracker's results were analysed by Sebastian Burnside, NatWest Chief Economist, and João Sousa, Deputy Director at the Fraser of Allander Institute, with a strong emphasis on cost of living issues, labour market developments and fiscal outcomes and outlooks.

This attendee was struck by several things, notably João's point that the rise in average earnings in Scotland, albeit outpacing inflation now, still remains below the increase in prices - i.e., people do not feel and indeed are not better off than last they were when they went to the polls in 2019. Indeed, this is the first time this has happened. The tracker shows Scottish sentiment in line with this: "...economic pessimism may prove hard to shake despite incremental improvements."

Women, especially those with children, are among the most pessimistic.  Even if some of the pessimism has lifted overall only 11% think things generally will improve (be much better or somewhat better) in 12 months' time and, when it comes to personal wellbeing, this rises to just 17%. Still, fewer folk are cutting down on leisure activities to make ends meet or losing sleep over their finances albeit the decline is quite marginal - and three in five Scots are still cutting back on non-essential purchases.

Sebastian intrigued the audience with the bank's internal evidence that its customers are dipping into their savings/deposit accounts when they're forced to make bigger outlays such as repairing the car. Overall, it seems, the struggle to remain on top of the monthly budget is as tough as it can get, notably for lots of younger folk. More than half of Scots (53%) remain dissatisfied with income covering the cost of living.

Campaign mantras such as "change" or "stability" in this context seem beside the point, especially when the fear lurks that the next government will be forced, willy nilly, to raise taxes in order to deal with a worsening UK fiscal position as the IMF and others have warned. It's a frequent message from a weary public when the TV crews conduct 'voxpops' in the pub or coffee shop.

Will the next tracker findings - due in late August or several weeks after the July 4 general election - reveal an uptick in optimism?

Don't hold your breath! It's more than likely that, whatever the outcome, voters will be suspending judgement (as many may do by abstaining and driving turnout down to historic lows) . What they most want is services delivery, not warm promises things can only get better. Are the candidates paying attention on the stump?

Watch the event recording:

Understanding Scotland Economy Tracker - May 2024 Insights

Blog: People’s priorities laid out for politicians

Blog by Catriona Matheson, DHI Trustee

As any parent of young children will be able to tell you, a lack of sleep can be hugely detrimental to your wellbeing.

With two very young children at home, I wasn't surprised to learn that more than one in three Scots surveyed about their finances said their mental health had taken a nosedive when their money worries were keeping them awake at night.

The latest Understanding Scotland Economy Tracker recently surveyed Scots about their financial wellbeing. The reading was bleak, though unsurprising in the current economic climate. More than half (54%) of Scots reported that their financial wellbeing is worse than 12 months ago, and this was higher among women (57%) than men (50%). In addition to losing sleep and poor mental health, significant numbers reported a negative impact on home relationships (22%), a detrimental impact on physical health (16%) or feeling less effective at work (13%).

Only one in three (34%) of respondents expressed contentment with their income levels and their ability to cover the cost of living, down from 37% previously. This decline is particularly pronounced in the ability of Scots to meet household bills, reflecting the difficulties faced by families and individuals across the country as they continue to navigate increased costs against stagnant incomes.  

Interestingly, despite these figures the cost of living was prioristed second (40%) to healthcare (52%) as top issues facing Scotland. This means Scotland's political parties should focus on the NHS as much as economic recovery when speaking to the electorate over the course of the General Election campaign. 

While the survey presented nuanced attitudes, a prevailing sentiment was clear: there is unease with Scotland's trajectory. A striking 62% of Scots think things in Scotland are going in the wrong direction which marks a notable surge from 58% in February 2023, and is the highest ever recorded in the Understanding Scotland series. Conversely, the proportion believing that Scotland is headed in the right direction has dwindled to 19%, the lowest the David Hume Institute has ever recorded. This unhappiness among Scots regarding the direction of the nation presents a steep challenge for political leaders. Not only does Scotland's economic prospects need to improve but Scots will need to feel the benefit before they have confidence in the country's leadership.

Survey fieldwork took place in early May when First Minister Humza Yousaf announced his resignation, and there was still uncertainty over his successor. At a UK level, an election was on the horizon but the timings were unconfirmed.

A few short weeks later, we now have John Swinney in Bute House and an imminent General Election with Labour poised to enter Number 10. The new First Minister has put economic growth at the heart of his plans for the Scottish Government, and Keir Starmer has already hit the campaign trail talking of "rebuilding Britain."

Whether our new First Minister and the next Prime Minister can turn the ship around remains to be seen, and whether Scots will start to see any benefit in their bank balance is even more uncertain. In the meantime, political leaders would do well to focus on the NHS and the cost of living crisis as they pound the pavements over the next few weeks. And let's hope, for the sake of getting a good night's sleep, the economy significantly picks up before too long.

Further reading:

Understanding Scotland Economy Tracker May 2024

Press Release: Healthcare and Cost of Living Top Priorities for Scots ahead General Election

Latest in the Understanding Scotland Economy Tracker series shows that healthcare and the cost of living remain the top concerns as candidates get set to make their offer to voters for the 4th of July election.

As Scotland gears up for the General Election, the latest survey from the Understanding Scotland Economy Tracker series reveals that healthcare and the cost of living are at the forefront of Scottish voters' minds as they get ready to decide how to cast their votes in July. 

Latest findings from the series show the top two issues for voters in Scotland are:

• one in two Scots (52%) cite healthcare and the NHS

• two in five (40%) the cost of living and inflation is a key issue

Graph to show the top priorities and issues cited in the Understanding Scotland Economy Tracker over time.

A host of other issues remain important to Scots, including poverty/inequality, trust in politics, the economy, and housing, which are regularly selected as top issues facing Scotland by upwards of 15% or more of Scots. However, there are notable changes in prioritisation among these issues, with emphasis on trust in politics rising two percentage points to 18% and emphasis on the economy falling two percentage points to 17%.

The constitution and devolution is reported as a top issue by only 7% of Scots in the latest figures for May 2024.

As parties craft their platforms and campaign messages, these results indicate that healthcare and the cost of living will be key battlegrounds in the upcoming election. 

Scott Edgar, Senior Research Manager at Diffley Partnership, said: 

“With 52% of Scots prioritising healthcare and 40% focused on the cost of living, it's clear that these will be decisive factors in the upcoming election. Parties who can effectively present solutions to these concerns over the course of the campaign are likely to gain a significant advantage at the polls.”

Susan Murray, Director of the David Hume Institute said: 

“These findings underscore the critical importance of healthcare and the cost of living for Scots as we approach the general election in July. Political candidates will need to address these issues head-on if they want to resonate with voters and secure their support”

Ends

Notes to Editor:

Designed by the Diffley Partnership and the David Hume Institute, the survey received 2,275 responses from a representative sample of the adult population, aged 16+, across Scotland. Invitations were issued online using the ScotPulse panel, and fieldwork was conducted between the 2nd-7th May . Results are weighted to the Scottish population (2021 estimates) by age and gender.

Press Release: Two-Thirds of Scots continue to reduce spending

Latest in the Understanding Scotland series continues to shed light on Scots’ survival tactics during challenging economic times

The Understanding Scotland Economy Tracker survey tracks economic attitudes and spending intentions from more than 2,000 members of the Scottish adult population every 3 months.  The fast turnaround time, this data was collected only two weeks ago, means early identification of changes in trends to support decision-makers.    

The latest insights show two in three Scots (67%) have resorted to reducing non-essential purchases, while significant proportions continue measures such as cutting back on energy use (64%) and leisure activities (62%). Additionally 45% report decreased savings contributions, and over a third are tapping into them for everyday expenses. These coping mechanisms are particularly prevalent among younger age groups, underscoring the disproportionate impact of the high cost of living on  working-age individuals.

The study reveals a cautious outlook among Scots regarding future spending. Both essential and non-essential spending expectations show little change, indicating ongoing caution amidst economic uncertainty.

Furthermore, the latest findings highlight generational divides in priorities.  Healthcare and the NHS are paramount among older age groups, whilst younger individuals are more focused on addressing rising living costs.

The study also reveals growing doubts among Scots about Scotland's trajectory, with the majority (58%) believing that the country is heading in the wrong direction. This marks a three-percentage-point increase from the previous wave and reflects an increasing sense of pessimism about the future.

Mark Diffley, Founder and Director of Diffley Partnership, said:

“The latest findings from our regular Understanding Scotland series continue to shed light on the economic landscape in Scotland today. The fact that seven in 10 Scots think that economic conditions are worse than 12 months ago and six in 10 think conditions will be worse in 12 months’ time, reveal ongoing and widespread pessimism. The data also again reveals the challenges posed by rising living costs and offers a glimpse into the daily struggles of many Scots, particularly those from disadvantaged backgrounds, highlighting that the cost-of-living crisis is far from over in terms of real life experiences.”

Susan Murray, Director of the David Hume Institute said:

“These findings reveal  a stark snapshot of the economic reality  of living in Scotland today. For anyone wanting to improve productivity or economic growth, focus on the number of Scots continuing to lose sleep over their finances, which creeps up another one percent this quarter to 30% and rises to 43% of 35 to 45 year olds. With so many of your workforce affected, we can only hope that things don’t get worse before they start to improve.”

The full report can be found here.

Notes to editors

Designed by the Diffley Partnership, the survey received 2,305 responses from a representative sample of the adult population, aged 16+, across Scotland. Invitations were issued online using the ScotPulse panel, and fieldwork was conducted between the 1st-5th February. Results are weighted to the Scottish population (2020 estimates) by age and gender.

Blog: why aren’t more people talking about the Scottish Child Payment?

18th September 2023

by Liz Ditchburn

The Scottish Child Payment is a bold policy intervention with cross-party backing targeting child poverty and its long-term consequences. This blog aims to stimulate discussion about this Scottish policy innovation and calls for investment and action to ensure we learn from its implementation, generating evidence about what works that will be useful in Scotland, the rest of the UK and beyond.

About the Author

Liz Ditchburn CB has more than three decades of experience in the UK civil service and devolved administrations in both domestic and international settings. Most recently, she was Director General for Economy for the Scottish Government, leading on all aspects of the economy and the drive towards net zero in Scotland. Although at the Scottish Government during the development of the Scottish Child Payment she has not worked on the policy itself.

Previously, she was the Department for International Development’s (now Foreign, Commonwealth and Development Office) Policy Director and its first Value for Money Director. Across her executive career she has worked to integrate economic, social and environmental change to secure better outcomes for people, place and planet.  Liz is now an Honorary Professor at the University of Glasgow, a Non-Executive Director of the Net Zero Technology Centre and a Trustee of NESTA.

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I’ve lost track of the number of times I’ve mentioned the Scottish Child Payment to colleagues and friends based elsewhere in the UK (even some involved in public policy work) and been told they’ve never heard of it. The next reaction when I describe the level and scale of this initiative, is “Wow! That’s big!”. It is indeed.

For those unfamiliar with this new payment to low income families in Scotland (broadly those in receipt of Universal Credit or similar), here are some headlines and a brief timeline:

• First payments began in February 2021 at the rate of £10 a week for each child under 6.

• Doubling of the payment to £20 a week per child was announced in November 2021 with payments at that level starting from April 2022. (In advance of the expected extension of the eligibility to under 16s, a system of bridging payments was put in place for children between 6 and 16 – in effect advancing the formal roll out)

• Payment increased to £25 a week per child and eligibility was formally extended to under 16s in November 2022.

What makes the Scottish Child Payment remarkable and worthy of more debate inside and outside Scotland?  And why does it matter beyond Scotland?

Firstly, impact for individuals: the numbers above bear repeating. If you are a low income family in Scotland, on top of UK child benefit and any other benefit, you can receive £25 per week for each child under 16. There are no limits to the number of children an eligible family can claim for.   To get a sense of impact for a typical family, a family with 3 children will receive £3,900 a year.  That’s a significant addition to a low income household. And it’s each year and every year, not a one-off boost.  At a societal level, modelling puts the impact on child poverty rates at a reduction of around 5% 

Secondly, coverage: when the payment began in 2021, Social Security Scotland estimated it was being paid for 106,000 children.  With the extension to under 16s, around four times more children could be covered. The Scottish Fiscal Commission (SFC) produced costings estimates when the extension to the scheme was proposed, calculating that around 41% of under 6s and 48% of over 6s would be eligible.  This translates roughly into an estimated 400,000 children being eligible (with actual coverage dependent on uptake). The latest statistics just published by Social Security Scotland show payments are being made in respect of just over 316,000  children.

Thirdly, scale:  this is a fiscal anti-poverty intervention at scale, not a small tweak at the margins.   Earlier this year, the Institute of Fiscal Studies produced some budget analysis for the Scottish Parliament during budget deliberations showing that tax and benefit changes are in effect a significant transfer from richer households to poorer households with children.   Graphics  in their published paper, analysis of Scottish tax and benefit reforms, are well worth a look. 

Fourthly, cost.  The SFC costed the Scottish Child Payment for 2023/24 at £405m.   The recent actual figures for Q1 23/24 published by the Scottish Government confirm this scale with £104.1m spent in the quarter.  To help put these figures into context for readers elsewhere in the UK, a very rough guide is to multiply by 10 to get an idea of an equivalent whole of UK scale – so such an initiative covering all the UK might be in the order of £4.2bn.

Fifthly, political consensus and societal attitudes:  both the introduction of the Scottish Child Payment and its increase to £25 per week per child has been marked by a pretty strong level of political and cross-party consensus.   Indeed, some of the challenge that the Scottish Government received (and still receives) in debates was along the lines of why not go further, faster, why not increase the rate beyond £25? That there is consensus around the idea that child poverty is a bad thing is not surprising; that there is agreement that direct cash transfers to families are an important part of the answer and affordable is more remarkable. 

Sixthly, the tone of the debate:  coverage and discussion around the payment have been mercifully free of language around “handouts” or whether people are “deserving” or not. When cash transfers first began to be adopted in an international aid setting, concerns about whether poor people could be trusted to do sensible things with cash were never far away. The evidence since has shown pretty consistently that given cash, people in poverty use it well.  (The Overseas Development Institute (ODI) has published a great review of the evidence around cash transfers, Cash transfers: what does the evidence say? | ODI: Think change.

What do we know so far about the impact of the Scottish Child Payment – does the evidence suggest that it is going to have the impacts the Scottish Government expects?   

The diagram below shows the short, medium and long term changes that the designers of this policy are looking for – the “logic model”. 

Source: Scottish Child Scottish Child Payment Interim Evaluation

The only published evaluation I’ve seen so far (please send links to any others if you know of them) is from March 2022: the interim evaluation published by the Scottish Government. It was conducted early in the life of the Scottish Child Payment and therefore necessarily focused on the immediate and short-term outcomes, and critically, refers to the period when the payment level was at £10. Nevertheless, it provides some interesting glimpses and areas for deeper exploration.

There was broadly positive evidence supporting some of the short-term outcomes: reduced money-related stress, increased child-related spend, children able to participate in social and educational opportunities and reduced pressure on household finances, with less clear evidence for an improved position of main carers within households. The findings on children’s opportunities and stress are really interesting. Finding out whether and how cash transfers can support better learning outcomes for children rather than just having a direct impact on material poverty is one of the big questions for cash transfers policies.  And we know that persistent stress can have a pervasive impact on long-term health.

These two quotes in the interim evaluation are compelling and provide a glimpse as to how this might be impacting:

 “[Scottish Child Payment] did lessen my worries quite a lot to be honest.  Money's the one thing I'm always stressing about, always thinking about, always worrying about. It was a relief to have that extra boost.  (Parent 22, age 18-24, care-experienced, 3+ children)  

[Scottish Child Payment helps with] not having to stress out because you know it’s coming. When I get stressed, I don’t sleep. I don’t deal well with stress. I don’t want the kids to see me stressed. (Parent 18, age 25-34, single parent)”    

Will these findings still hold at the higher level of £25, under the changed economic context and even sharper cost of living challenges?

The interim evaluation includes lots of detail around the application process and uptake.  As a “passported” benefit (that is one that you’re entitled to because you already receive another benefit), applications should be more straightforward and administratively less costly than standalone benefits.   

However, this also brings with it often complex interactions with other parts of the tax and benefit system and a particular challenge for policy makers when different parts of the tax and benefits system are owned and delivered by different governments; understanding the implications of these interactions – the potential for cliff edges or disincentives to employment for example – will be important.   

Currently, Scotland is the only part of the UK with this system.  For policy makers, differentiation of policy creates a precious opportunity to find out what works, to learn from the experience of implementation and to better understand how best to create the changes we want.  There are other ways to learn of course as well. Randomized Controlled Trials (RCT) are often seen as the gold standard.

NESTA (full disclosure, I am a Trustee) is considering the value of RCTs in this area and also keen to look at what we can learn from Scotland Welfare reimagined: could cash transfers combat child poverty? | Nesta.

We only learn if we invest explicitly in learning - putting in place the impact evaluations, gathering the data, quantitative and qualitative, listening to the stories, testing out our assumptions, doing high quality research.   Few policies work in practice exactly as we intended at the design stage – and sometimes they don’t work at all to produce the change expected.  They can evolve and improve based on experience.  

At a recent event in Edinburgh, Prof Danny Dorling described the Scottish Child Payment as the single policy intervention that has created the largest fall in child poverty anywhere in Europe for at least 40 years.  

Impartiality runs deep in the soul of a longtime civil servant so I am not writing this paper as an advocate of the Scottish Child Payment, important though it will be to the many thousands who receive it, but as a call for us all to invest in learning about what works in tackling child poverty and inequality and to debate these issues throughout the UK with evidence, humility and an open mind. 

Ends

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Why is DHI thinking about the Scottish Child Payment?

We heard at our recent event with Professor Danny Dorling about how rising poverty and inequality is shattering our nation. We know from our Understanding Scotland Economy Tracker that at least 1 in 4 people are consistently affected by financial stress which is affecting their sleep and nutrition.

Beyond heart-breaking individual stories, poverty results in significant intergenerational consequences for the labour market and public spending especially through long term health conditions.  As pressures rise on public spending, this is the biggest move yet by the Scottish Government to get up-stream and move towards a preventative agenda as laid out by the Christie Commission.

Blog: The lifeblood of our economy is in peril

5th December 2022

Guest blog from Shona McCarthy, Chief Executive of the Edinburgh Festival Fringe Society, reflecting on the latest Understanding Scotland economy insights and what they means for the arts, culture and society.

Shona wants to see more people supporting and advocating for the arts. Here she explains what we stand to lose if the sector is not better protected during these turbulent economic times.

Photo: Edinburgh Festival Fringe Society, Andrew Downie 2018

In hard economic times it often feels as if people think investment in the arts is an unaffordable luxury.  Our sector is almost always the first to experience disinvestment in times of crisis but often the first to be looked to when thoughts turn to rebuilding hope, optimism, prosperity.  The Edinburgh Festivals are a fine example of this belief in the power of the arts to boost the national mood and forge cultural links internationally. They were established, by the British Council amongst others, to heal the human spirit and reconnect people across Europe, after the horrors of the second world war.

A thriving and inclusive creative sector is not a luxury or added extra in the UK, it is an essential part of the best of who and what we are, and is vital economically, socially, internationally, and culturally.

In 2019 the creative industries contributed £115.9bn in Gross Value Added (GVA)  to the UK economy. That’s 6% of the UK’s total GVA, more than the combined contribution of aerospace, automotive, life sciences and oil and gas and equivalent to 70% of the GVA generated by the financial and insurance sector.

Our sector also created jobs at three times the UK average employing two million people across the UK and supporting a further 1.4 million jobs across the supply chain. So the arts and creative industries are a route to opportunity, employment as well as life enhancement.

Our social and cultural contributions are similarly immense. Great strides have been made in recent years to address inequity in the arts and creative sector. We have worked hard to remove barriers to those who have historically found it most difficult to find a foothold or even aspire to a career in this field. There is still much to do in terms of where the arts are positioned in our schools and education system, to fully understand the transferable skills gained from early exposure to the arts that enhance employability, creative thinking and success in any sector.

We are known the world over for our cultural identities and freedom of speech and expression, for the innovation and originality of our voices in the arts. Creativity, whether expressed through music, literature, performance, visual art or other activities, forms our biggest soft power asset.

We cannot afford to lose these assets built over many years. Having just about survived two years of pandemic-related disruption, we have to face the evidence that audiences are not planning to return in sufficient numbers in 2023 to generate the income needed to cover all the costs that are rising so rapidly. There are no cultural recovery funds to draw on. Our sector is teetering on the edge and, therefore, risks becoming increasingly unappealing as a career choice.  Without support, belief, investment and recognition of our value, the arts sector is set to lose vital talent and skills in the short-term, and become the privilege of only those who can afford it as either practitioners or audience members for the longer-term.

We underestimate the value of our creative output and the sophistication of our artistic expression at our peril. The Edinburgh Fringe is located here but this is not an issue just for Edinburgh or even just for Scotland.  The Fringe is a global marketplace for the whole of the UK, bringing some 63 countries to our stages as well as programmers, curators and screen commissioners from around the world to source new talent and work.

The Fringe is not like any other festival. It is to the performing arts what Venice Biennale is to visual arts, Cannes to film, and South by Southwest is to music. It has been going for 75 years, and with our sister summer festivals, our combined ticket sales are on a par with the Fifa world cup or an Olympic Games, but happen every single year, with nothing close to the investment.

So this is a plea for support. The creative and cultural sector is a critical part of our economy, but more importantly says more about who we are as people, than any other sector. If there is anything you can do to advocate, champion or directly invest in our cause, it would be very much appreciated.

 ENDS

 Link for further information on the Edinburgh Festival Fringe Society 

Press release: New research finds risk overload

28th September 2022

Risk overload and a deep lack of trust are storing up future financial problems, new research finds:

We have become a nation of overburdened sceptics when it comes to managing our financial wellbeing, which is storing up massive issues for the future, according to a new study by the David Hume Institute. 

As few as one in ten (11%) “entirely trust” the UK Government when it comes to getting advice or guidance on financial matters – with levels of trust in the Scottish Government faring no better.  Only two in ten (21%) trusted “companies which provide financial products such as pensions” as a source of information.

Through a series of one-to-one online interviews, group discussions and a commissioned survey of over 1000 people living in Scotland, the research also found that 36% of people surveyed said they did not know who they could trust for advice or guidance. Of particular concern were those immediately affected by recent pension reforms, with 28% of over 65s and 32% of those aged 55 to 64 stating they did not know who to trust. 

Following a clear shift in responsibility for financial security from government and institutions to the individual, another 32% did not know what advice or guidance could help them.

Sources of advice which were praised in one-to-one interviews for their quality, trustworthiness and independence included Martin Lewis and Citizens Advice Bureau, while over half (52%) in the survey identified family and friends as their source of reliable information.

However, the study, The Great Risk Transfer, also found that stress, fear, stigma and embarrassment were holding back many people from seeking guidance and undermining their ability to absorb relevant information about the matters that affect their wellbeing, be that pensions, insurance, future health provision, housing or employment.

Consequently, the report concludes that financial risks are intensifying, creating an unfair and increasing burden on the individual. Government policy built on the premise that more choice is always good now needs to be reviewed: many people do not have more choice, just much more risk and less of a safety net should things go wrong in their lives.

Commenting on the study’s findings, Susan Murray, Director of the David Hume Institute, said:

“Trust is clearly a barrier to seeking advice but there are also other cultural and emotional factors at play, including stress and embarrassment and lack of knowledge that stop people from dealing with the financial risks that impact their lives. 

“The research highlights how governments and employers have shifted the burden of financial risk increasingly to the individual who is expected to understand and manage the many choices they face when it comes to pensions, health, housing and employment. Yet in reality, circumstances can not only limit choice but can also mean that many do not know the myriad of decisions they have to make. Indeed, a good choice today could easily be a bad choice tomorrow and without government safety nets, a huge problem awaits us all in the not-so-distant future unless we begin now to talk more openly about money and re-evaluate where the burden of risk is falling.”

“Many of the participants in the research described the barriers but most expressed a strong desire for improved access to relevant information and guidance. Trust in non-profit sector providers, especially Citizens Advice Bureau, was significantly higher than the most trusted financial services providers. So, while the answer is not simply more information, long-term stable funding for the most trusted providers must clearly be a strategic priority if the goal is to better equip people to manage financial risk.”

The research was commissioned by the Institute and Faculty of Actuaries (IFoA). Nicholas Chadha, who is part of the Scottish Board of the IFoA, said:

“This is a powerful independent report from the David Hume Institute based on rich research and compelling individual testimony. While primarily based on evidence from Scotland, the challenging recommendations clearly have wider application and resonance.  As part of our public interest commitment, we look forward to a vigorous debate on the findings at a time when the challenge to individuals and communities to understand and calibrate risk is so vital to their financial wellbeing.”

ENDS

Watch the recording of the research launch event:

Notes to Editors:

• The Great Risk Transfer: have we got the balance right? was part-funded by the Institute and Faculty of Actuaries Scottish Board Endowment Fund.